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What To Buy

Bars & Ingots

Gold and Silver: When looking at Gold or Silver bars and ingots you will often have the choice between cast or minted bars.

Cast bars where the metal is poured in liquid form (after being heated) into a mold. Generally these bars will appear less refined and may have an uneven looking surface.

Minted bars are pressed in a machine with minting dies onto 'blanks'. Visually they are more attractive and some manufacturers add an extra level of security by putting minted bars in plastic security cards.

A premium is paid for minted bars. Whether it's worth the premium is something that you will have to decide for yourself, but I believe the security cards that Perth Mint and PAMP put some of their minted bars in are a welcome addition and will make it easier to sell them when it comes time to do so.

Gold: Gold bars and ingots come in many shapes and sizes. There are many different hallmarks and brands. Where possible you are best sticking with those easily recognised here in Australia, for example brands such as Perth Mint, ABC, PAMP or Ainslie are well known and widely accepted.

To provide maximum liquidity it would be prudent to buy bars and ingots that are 2oz or less and it would probably be worth aiming for 10g to 1/2oz where you can get them for a reasonable premium. If Gold heads to $3000 an ounce you have to ask how many people would have in excess of $6000 (2oz) to spend in one go to purchase it from you. A larger bar limits the liquidity of your stack if you intend on selling privately (the liquidity risk of larger bars is smaller if you intend on selling back to a dealer).

Silver: As well as cast/minted bars a fairly recent addition to the popular Silver bar lineup has been a CNC Milled bar. These bars have grooves cut out of them with a special machine and in the case of the 'stacker' series bars (of which there are multiple branding) they are able to be stacked in an interlocked format one on top of the other. Once again I would try and stick to the well known brands and formats to ensure they are easily sold when the time comes.

To provide maximum liquidity I would stick with 1kg Silver bars or smaller. 10oz Silver bars are extremely popular and can be purchased for only a small premium to the spot price. Although 100oz bars and larger can be purchased for smaller premiums, if we were to see Silver head to $100 an ounce you are left trying to shift a single bar which would be worth $10,000.

Coins & Rounds

Sovereigns (Gold):
Sovereigns and half Sovereign coins are a popular choice for Gold
investors. Sovereigns are a 22k Gold coin (.916 Fine). A full sovereign
has a .2354 AGW and the half sovereign contains .1177 AGW. Being so
close to a 1/4 Troy Ounce of Gold makes the Sovereign a handy coin for
trading.

Some less common years
command a higher premium, but generally Sovereigns will be sold for
around 12% over spot price of the Gold.

Sovereigns
are sometimes copied by jewelers in which case they would normally have
an additional hallmark to indicate that is the case. Some jewelers
copies will be a less fine (at 18k rather than 22k), so where possible
you are best to stick with the original coins.

Uncirculated Coins (Gold & Silver): Government minted coins are generally more expensive that generically minted rounds (as described below). Coins are produced in government owned mints and usually have a face value (and legal tender status). Examples of bullion coins are the Perth Mint Kookaburra and Lunar coins, the United States Gold & Silver Eagle, the Canadian Maple Leaf, Vienna Philharmonic coin and the Chinese Panda. Some of these coins are relatively low in mintage so can achieve a high premium once no longer available from their original source (mint or official distributors).

Circulated Coins (Silver): When I say circulated I refer to coins that either were or are circulated as legal tender in Australia and contain Silver. Such coins include the 1966 Round 50 cent piece as well as older predecimal coins such as florins, shillings & crowns. These coins all have different Silver content and this can even change depending on year, for example predecimal up until 1946 was coined in Sterling Silver (92.5%), but following were only 50% Silver. The 1966 Round 50 cent piece is 80% Silver. Silver in this form is relatively inexpensive and should be purchased for spot or only a few % higher. Given the small content of Silver in each coin these coins would become very practical if the need ever arose for transactional size bullion.

Rounds (Gold & Silver): Bullion rounds are similar to bullion coins, except they are not issued by a government mint as legal tender. Popular Silver rounds include Buffalos & Scottsdale Omnia rounds. Stick to common/well known coins to avoid difficulty in selling. There are many different obscure generic round designs which might be attractive to you, but more difficult to sell later on.

Numismatics

If you are buying numismatic coins at a significant premium to Gold/Silver then you are speculating on the demand for the coin, rather than on the underlying value of the metal. If you are specifically buying Gold and Silver to take advantage of the rise in spot prices then you are best avoiding numismatics.

However, some new release bullion coins are minted in limited quantities providing an opportunity to buy them at bullion prices and holding the potential they will achieve a numismatic premium later down the track. This premium can take years to develop or like the recently released Perth Mint 2012 Lunar Dragon the premiums can develop practically overnight once sold out at the mint.

In my opinion you are better off paying a little extra for the Perth Mint limited mintage 1oz bullion coins (particularly in Australia where Perth Mint coins are highly sought after) rather than American Silver Eagles, Maples and other unlimited (or high limit) mintage coins & rounds.

Examples of bullion coins which can achieve a numismatic premium down the track are the Perth Mint Lunar Series, the Kookaburra Series and the Koala Series. Make sure you do your research as generally only some of the sizes will have a limited mintage making the demand for these specific coins somewhat larger.

Jewelery

Jewelery made out of Gold and Silver is one way of gaining exposure to the metals if you can buy it for a reasonable premium (note that most jewelery retailers will sell at a huge premium, so generally should be avoided), however it is not as easily checked for authenticity (for example unlike coins there is no universal size/weight that it can be checked against). When selling jewelery back to a jeweler or gold buyer you would expect to receive less than spot price in most cases.

One of the perceived benefits of holding Gold/Silver jewelery is that if the metals were ever confiscated by governments it would likely be excluded. However in my opinion unless you have appropriate resources to thoroughly test the pieces you are buying then the risks far outweigh the potential benefits.

What not to buy

Unfortunately there are many items sold (particularly on auction sites like eBay) which are not real Gold/Silver and should be avoided at all costs. Some examples include:

German (Nickel) Silver: This is a copper alloy with nickel and often zinc. The usual formulation is 60% copper, 20% nickel and 20% zinc.

100 Mills/Mils: Refers to a Silver (or Gold) plated product. While the very thin exterior layer *might* be real Silver or Gold, the inside will be something else (usually copper).

HGE Gold: Stands for Heavy Gold Electroplate and consists of a base metal that has been plated in Gold.

Gold Flakes: Often sold in vials this alloy is unlikely to contain significant amounts of (if ANY) real Gold.

Columbiam (Niobium) / Molybdenum Bullion: Other metals may be manufactured into bars and coins and sold as a “precious” metal, but ultimately they are of little value to the investor.

Other keywords to look out for when avoiding products which are likely to be fake and contain little or no real Gold/Silver: Copy, Replica, Plated, Layered

The easiest way to avoid fake, replica or otherwise worthless metals is to buy from a reputable source (such as a well known and respected dealer).

What Mix Is Best

Probably the three largest factors that will weigh in on what you should buy will be liquidity, recognition and premium. Some questions you might need to ask yourself would be:

Liquidity: How much will each piece be worth at my target sale price and will a buyer be easily found?

Recognition: Will a buyer easily recognise the brand of bullion that I've purchased?

Premium: Will I get the premium back when reselling that I've paid for each item?

For example if you have a million dollars to sink into physical Gold/Silver and intend on selling back to a dealer then you won't want to be messing around with predecimal coins, likely the best solution would be to stick with large, widely recognised/accepted bars, such as 10oz to 1 Kilo Gold bars and 1000oz Silver bars.

Those of us with a smaller bank roll who intend on selling Gold and Silver privately will need to find a balance of smaller products that will be more easily sold. A reasonably balanced stack with a mix of low premium and easily sold & recognised products might look like this (example only, not advice):

The above is based on today's spot price and premiums from a dealer, but it gives you an idea of an idea of a well recognised and easily liquidated stack looks like with a mixture of low and higher premium products.

Depending on your outlook for Gold or Silver then you might more heavily weight your buying in one direction or the other.

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Spot Gold Price (AUD)

Disclaimer:I am not a licensed financial adviser. This site does not contain financial advice or a recommendation to buy/sell any asset. Please do your own due diligence and consult a professional if you require individual assistance with your investment decisions (preferably one that didn't lose the shirts off the back of their clients in the 2007 - 2009 market rout).